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In the world of mortgage financing there are “conventional” loans and “jumbo” mortgages. A conventional loan meets certain criteria but is limited to $417,000 for single-family homes in the continental US. (The limit is 50% higher in Alaska, Hawaii, Guam, and the U.S. Virgin Islands.)

If you borrow more than $417,000 then you have a “jumbo” mortgage and will likely pay a higher interest rate.

The Office of Federal Housing Enterprise Oversight (OFHEO) has announced that the conforming loan limit will remain the same in 2008.

OFHEO, which oversees Fannie Mae and Freddie Mac, the two big buyers of real estate mortgages, says that “based on provisions in the proposed guidance, the current conforming loan limit will not be reduced for 2008. If the index used to calculate the maximum loan level should increase, the amount of the increase in 2008 would be reduced by the decline calculated in 2006 of 0.16%. Under no circumstance, however, would the maximum loan level for 2008 drop below the 2006 and 2007 limit of $417,000.”

In other words, while the conforming loan rate is supposed to rise or fall according to home sale pricing, the system is being fudged to assure that the loan limit remains steady regardless of what actually happens in the marketplace.

This is important to FHA borrowers for this reason: Under the current system the maximum FHA loan limit for high-cost areas in the lower 48 states is equal to 87 percent of the conventional loam limit. $417,000 x .87 = $362,790.

Also the FHA floor, the highest loan available in low cost areas, is equal to 48 percent of the conventional loan limit. $417,000 x .48 = $200,160.

Of course, if FHA modernization passes in Washington, then the FHA maximum is likely to be increased to the conventional loan limit.

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on Tuesday, October 16th, 2007 at 10:37 am and is filed under , .
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